Tax Software: Enhancing Productivity through Technology

Tax Software: Enhancing Productivity through Technology

Article excerpt

You needn't be a rocket scientist to notice the dramatic impact that technology has had on the professional services sector. Computer use is more widespread than ever as the need for fast and accurate information accelerates. Peer in to a brokerage firm on Wall Street and you will quickly become aware of the technology that is shaping the industry. The same can be said for companies within the legal profession and, yes, even in the accounting profession. In many ways, tax return processing has been the major application driving the computerization of the accounting profession.

Have the significant technological advances made in the last two decades resulted in corresponding increases in productivity for the tax professional? Recent studies show that while billions of dollars were spent on computer hardware and software during the 1980s, white collar productivity remained virtually unchanged. While no one would argue that computerized tax return preparation must be more efficient than manual methods, technology and software alone are not the answer. To understand why there is still unleashed productivity for tax professionals, one must first understand the history of how technology has impacted the profession.

Computer technology has been used in the tax preparation process for nearly 25 years. In fact, such usage has been relatively widespread since the 1970s. During the pioneer stage, service bureaus began to use mainframe computer technology to provide non-tax data processing services. Often times, however, there would be excess capacity on the systems. These service bureau providers realized that they could apply this space to compute tax returns. As a result, the service bureaus began to seek out tax preparers who were willing to pay to have computers generate the tax returns for them. At this time, the data processing meant entering information onto paper input forms which were mailed to the service bureau. The service bureau processed the return and mailed the tax returns back to the preparer for review and reprocessing.

While mainframe computers are still used to process some tax returns, the introduction of the microcomputer has allowed tax technology to leap forward over the course of the last decade. When first introduced, the microcomputer (micro, for short) was used mainly to communicate with the mainframe machines at service bureaus simply because micros were not capable of processing all of the necessary information on a stand-alone basis. This philosophy survives in certain micro-based software sold by service bureaus, who may still transmit certain complex returns back to the mainframe computer for calculation.

However, because of advancements in technology, the microcomputer today can not only perform the most complex tax computations, but it can do so quickly, accurately and at a cost which is considerably lower than in the days of the big mainframes. Consequently, with the right tax software, all aspects of the tax return can now be done in the office of the tax preparer.

One of the reasons that productivity has not increased as much as it could is that many preparers have not adjusted their methodologies to take advantage of the new technology. Many tax professionals who were used to filling out input forms to submit to a service bureau continued this practice on the micro. While many micro-based programs let the user create organizers that can be used to let the client summarize annual tax data, a lot of professionals are not using these organizers. Other preparers who use organizers will still spend time transcribing the data onto input sheets.

Another detriment to productivity can be caused by the very reason computers are used in the first place - their speed of calculation. If you compare the total number of times a return was processed back in the service bureau days versus the number of times processed in a firm that utilizes micro-based software, you would probably find a significant increase. …